Terra Renewal LLC v. McCarthy et al

Filing 33

ORDER granting 26 Motion for Default Judgment for the plaintiff in the amount of $96,250 in compensatory damages, and $3,000 in punitive damages. Plaintiff is awarded prejudgment interest on $16,250 and $80,000 from the time of the loss until judgment at the highest rate allowed by Arkansas law, or 6%. Plaintiff is awarded post-judgment interest which will accrue at the rate of.20% per annum until the judgment is satisfied. Plaintiff is entitled to an award of costs and attorney's fees and is directed to submit a motion within 10 business days of the date of this Order. Signed by Judge Billy Roy Wilson on 7/10/12. (kpr)

IN THE UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF ARKANSAS
WESTERN DIVISION
TERRA RENEWAL, LLC
vs.

PLAINTIFF
4:11CV00653-BRW

DANIEL McCARTHY, INDIVIDUALLY
AND IN HIS CAPACITY AS PRESIDENT
OF LAKESIDE CAPITAL DEVELOPMENT
LLC and d/b/a MIDWEST EQUIPMENT
LEASING, et al.

DEFENDANTS

ORDER
Pending is Plaintiff’s Second Motion for Default Judgment (Doc. No. 26). No response
has been filed, and the time for doing so has passed.1 Plaintiff’s Motion is GRANTED to the
extent set out below.
I.

BACKGROUND
Plaintiff is a Delaware corporation headquartered in Russellville, Arkansas.2 Plaintiff

offers wastewater and residuals disposal solutions to companies nationwide. Defendant
Lakeside Capital Development, LLC (“Lakeside”) is Wisconsin Limited Liability Company;
Defendant Daniel McCarthy is a resident of Wisconsin and president of Lakeside.3 Defendants
offer equipment financing services.
Plaintiff alleges that it entered into two agreements for equipment financing with
Defendant Midwest Equipment Leasing. Under the first agreement (“First Agreement”), which
is in writing, Plaintiff paid a $16,250 commitment fee in exchange for Defendants’ financing

1

Any response was due by April 2, 2012.

2

Doc. No. 2.

3

Id.
1

services. The First Agreement is attached to Plaintiff’s Amended Complaint (“Complaint”).4
Under the second agreement (“Second Agreement”) (collectively, the “Agreements”), which was
an oral agreement, Plaintiff paid an $80,000 commitment fee for Defendants’ financing services.
Each commitment fee represented approximately 2% of the total value of the transactions to be
financed and was paid to Defendants in exchange for Defendants’ services. Plaintiff maintains
that Defendant Daniel McCarthy (“McCarthy”) personally guaranteed both Agreements.
Although Plaintiff paid $96,250 in commitment fees, Plaintiff never received the financial
services for which it contracted, and Defendant has not returned the $96,250.
Plaintiff sued Defendants for breach of contract, fraud, and unjust enrichment, and
included a claim under Ark. Code Ann. § 16-118-1075 (alleging a class B felony), as well as a
civil RICO claim. Plaintiff also asks that the corporate veil be pierced to hold McCarthy
personally liable.
There has been no entry of appearance on Defendants’ behalf. Defendants did not
answer or otherwise respond to Plaintiff’s Complaint. On March 6, 2012, Plaintiff filed a
Motion for Clerk’s Entry of Default;6 the Clerk entered default on March 8, noting service of the
Complaint on January 26, 2012.7 On March 16, 2012, Plaintiff filed a Second Motion for

4

Doc. No. 2, Ex. 1.

5

Ark. Code Ann. § 16-118-107(a) reads:

(1) Any person injured or damaged by reason of conduct of another person that would
constitute a felony under Arkansas law may file a civil action to recover damages based
on the conduct.
(2) The burden of proof for showing conduct that constituted a felony shall be a
preponderance of the evidence.
(3) If the person who is injured or damaged prevails, he or she shall be entitled to recover
costs and attorney’s fees.
6

Doc. No. 23.

7

Doc. Nos. 24, 25.
2

Default Judgment.8 Defendants did not respond. I held a default judgment hearing on June 5,
2012. Defendants did not appear.
II.

STANDARD OF REVIEW
After default is entered against a party that has not appeared or has otherwise failed to

defend, default judgment may be sought.9 A default judgment “binds the party facing the default
as having admitted all of the well pleaded allegations in the plaintiff’s complaint” except for
facts relating to the amount of damages.10 “[W]hen a default judgment is entered, facts alleged
in the complaint may not be later contested.”11 “However, . . . ‘it remains for the [district] court
to consider whether the unchallenged facts constitute a legitimate cause of action, since a party
in default does not admit mere conclusions of law.’”12 When a party applies to the court for
default judgment, a court may conduct a hearing to establish the truth of any allegation and to
determine the amount of damages.13 If the damages claim is for an uncertain sum, the amount of
damages must be proved to a reasonable degree of certainty.14
III.

DISCUSSION
A.

Breach of Contract and Personal Guaranty

8

Doc. No. 26.

9

FED. R. CIV. P. 55.

10

Angelo Iafrate Constr., LLC v. Potashnick Constr., Inc., 370 F.3d 715, 722 (8th Cir.

2004).
11

Marshall v. Baggett, 616 F.3d 849, 852 (8th Cir. 2010) (citing Thomson v. Wooster,
114 U.S. 104 (1885)).
12

Id. (internal citations omitted).

13

FED. R. CIV. P. 55(b)(2).

14

Everyday Learning Corp. v. Larson, 242 F.3d 815, 818-19 (8th Cir. 2001).
3

Based on the allegations in the Complaint, the First Agreement attached to the
Complaint, and testimony at the June 5, 2012 hearing, I find that Plaintiff and Defendants
entered into two contracts -- the First Agreement and the Second Agreement -- and that
Defendants breached those contracts. I also find that McCarthy personally guaranteed both
Agreements.
B.

Fraud and Piercing the Corporate Veil

To establish fraud, Plaintiff must show that Defendants: (1) made a false representation
of material fact; (2) knew that the representation was false; and (3) intended that Plaintiff act in
reliance on the misrepresentation.15 Plaintiff must also show that it justifiably relied on the
misrepresentation and that it suffered as a result of the misrepresentation.16
Plaintiff alleges that McCarthy materially misrepresented his industry qualifications and
connections, and his affiliation with industry groups, as well as his intent and ability to secure
financing.17 According to Plaintiff, Defendants represented that they had immediate access to
the financing amount. The Complaint further alleges that McCarthy said “the deal was done” as
to the first financing transaction in order to induce Plaintiff into proceeding with the second
financing transaction.18

In reliance on these misrepresentations, Plaintiff entered into both Agreements. As set
out above, Plaintiff never received the financing or its money back, and Defendants avoided

15

Archer-Daniels-Midland Co. v. Beadles Enters., 367 Ark. 1, 6 (2006).

16

Id.

17

Doc. No. 2.

18

Id.
4

contact with Plaintiff after receiving the second commitment fee. Accepting the allegations in
the Complaint -- which were further explained at the June 5, 2012 hearing -- as true, Plaintiff has
established fraud.
It further appears that the corporate form has been abused and that the corporate veil
should be pierced. Accordingly, McCarthy will be held personally liable.
C.

Unjust Enrichment

Under the equitable doctrine of unjust enrichment, “one person should not be permitted
unjustly to enrich himself at the expense of another, but should be required to make restitution of
or for property or benefits received, retained, or appropriated . . . .”19 While generally there can
be no unjust enrichment in contract cases, when a contract is void, unjust enrichment may be
asserted as an alternate remedy.20 Above I found that Plaintiff and Defendants entered into two
contracts, and that Defendants breached both. In the alternative, I find that Defendants have
been unjustly enriched in the amount of $96,250.
D.

Ark. Code Ann. § 16-118-107

Under Arkansas law, a person who has been damaged by another’s conduct, when that
conduct constitutes a felony, may file a civil action to recover damages arising from the
felonious actions.21 Plaintiff alleges that Defendants committed class B felony theft of property
and seeks the damages arising from the theft.
A person commits theft of property if he or she knowingly takes or exercises
unauthorized control over or makes an unauthorized transfer of an interest in the
property of another person with the purpose of depriving the owner of the property;

19

Pro-Comp Mgmt. v. R.K. Enters., LLC, 366 Ark. 463, 469 (2006).

20

Campbell v. Asbury Auto., Inc., 2011 Ark. 157, at *23 (2011) (citing 1 Howard W.
Brill, Arkansas Law of Damages § 31:2 (5th ed. 2010)).
21

Ark. Code Ann. § 16-118-107.
5

or obtains the property of another person by deception or by threat with the purpose
of depriving the owner of the property.22
Theft of property is a B felony if the value of the property is $25,000 or more.23
Here, Defendants made misrepresentations to Plaintiffs with the intent of collecting the
commitment fees. Accepting the allegations in the Complaint as true, Defendants received the
commitment fees with the purpose of depriving Plaintiff of its money. Plaintiff may recover
under Ark. Code Ann. § 16-118-107.
E.

Civil RICO

To succeed on a RICO claim, a plaintiff must prove: (1) the existence of an enterprise;
(2) a defendant’s association with the enterprise; (3) a defendant’s participation in predicate acts
of racketeering; and that (4) the defendant’s actions constitute a pattern of racketeering activity.24
A pattern “requires the showing of a relationship between the predicates . . . and of the threat of
continuing activity.”25 Continuity refers “either to a closed period of repeated conduct, or to past
conduct that by its nature projects into the future with a threat of repetition.”26 In short, a
plaintiff may establish closed-ended or open-ended continuity. “Closed-ended continuity
involves a series of related predicates extending over a substantial period of time . . . .”27 The
Eighth Circuit has found that closed-ended continuity can be shown by predicate acts spanning

22

Ark. Code Ann. § 5-36-103(a).

23

Ark. Code Ann. § 5-36-103(b)(1)(A).

24

Sinclair v. Hawke, 314 F.3d 934, 943 (8th Cir. 2003).

25

H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 239 (1989).

26

Craig Outdoor Adver., Inc. v. Viacom Outdoor, Inc., 528 F.3d 1001, 1028 (8th Cir.

2008).
27

Crest Constr. II, Inc. v. Does, 660 F.3d 346, 356 (8th Cir. 2011) (internal citations
omitted).
6

of period of time of at least one year.28 Open-ended continuity requires a showing that a threat
extends indefinitely into the future.29 With respect to open-ended continuity, the United States
Supreme Court gave the following example:
Suppose a hoodlum were to sell “insurance” to a neighborhood’s storekeepers to
cover them against breakage of their windows, telling his victims he would be
reappearing each month to collect the “premium” that would continue their
“coverage.” Though the number of related predicates involved may be small and
they may occur close together in time, the racketeering acts themselves include a
specific threat of repetition extending indefinitely into the future, and thus supply the
requisite threat of continuity.30
Plaintiff alleges that Defendants engaged in a pattern of racketeering activity involving
mail fraud and wire fraud.31 The Complaint sets out that Defendants corresponded with Plaintiff
through emails and telephone calls. McCarthy made multiple misrepresentations to Plaintiff,
upon which Plaintiff relied. In reliance on the representations, Plaintiff entered into the First and
Second Agreements. The First Agreement was concluded around June 21, 2011; the Second
Agreement was concluded around July 21, 2011. Plaintiff does not specify when its contact with
Defendants began. After receiving the $80,000 commitment fee under the Second Agreement,
Defendants seemingly have disappeared.
Plaintiff does not allege facts sufficient to establish continuity. Nothing in the record
indicates that predicate acts occurred over a substantial -- a year or more -- period of time.
Further, the acts involved here do not constitute a threat continuing indefinitely into the future.
Rather, there were two Agreements and when the second commitment fee had been paid, the

28

Id. at 357.

29

See id.

30

Northwestern Bell Tel. Co., 492 U.S. at 242.

31

Doc. No. 2.
7

activity apparently ended. Because Plaintiff cannot establish continuity, its RICO claim fails.
Because Plaintiff has not shown continuity, I will not address the other elements of a RICO
claim.
CONCLUSION
Based on the findings of fact and conclusions of law above, Plaintiff’s Motion for Default
Judgment is GRANTED in the amount of $96,250 in compensatory damages, and $3,000 in
punitive damages. Plaintiff is awarded prejudgment interest on $16,250 and $80,000 from the
time of the loss until judgment at the highest rate allowed by Arkansas law, or 6%.32 Plaintiff is
awarded post-judgment interest,33 which will accrue at the rate of .20% per annum until the
judgment is satisfied. Plaintiff is entitled to an award of costs and attorney’s fees, and is directed
to submit a motion within 10 business days of the date of this order.
IT IS SO ORDERED this 10th day of July, 2012.

/s/Billy Roy Wilson
UNITED STATES DISTRICT JUDGE

32

See Kutait v. O’Roark, 305 Ark. 538, 541 (1991); Shepherd v. State Auto Property and
Cas. Ins. Co., 312 Ark 502, 516 (1993).
33

28 U.S.C. § 1961.
8